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Endorsed by the Alternative Reference Rate Committee (ARRC) in June 2017, the Secured Overnight Financing Rate (SOFR) is a broad Treasuries overnight repo financing rate to be published by the Federal Reserve Bank of New York in cooperation with the U.S. Office of Financial Research starting April 3, 2018.

SOFR Futures Contract SpecificationsBased on extensive customer input, CME Group will launch 3-Month and 1-Month SOFR futures contracts. The 1-Month SOFR futures strip will prove useful to market participants who seek finer granularity in framing market expectations of future SOFR values over the nearby 1-month to 7-month interval during which the front 3-Month contract becomes more set each day from daily SOFR fixings.

Metals - Gold

June Gold, Is the Bull Party Over?

We’ve finally seen the gold market break out of the recent trading range it’s been in for the past several months. Fundamentally, this is due to several different factors. The first and most obvious reason is a much stronger US dollar. There are no signs that the DXE is going to slow down. With four rate hikes now forecast at a coin flip, and decently strong economic data that seems to be coming out week after week. The North Korean peninsula is now in a very real and likely position for peace, something that was unheard of just a few weeks ago. It appears that maximum pressure through sanctions and military strength has brought the Kim regime to it’s knees. We are far from out of the woods on this, but something that could heat up again is the Iran nuclear program should the US choose to leave the deal. This appears more likely than not, but North Korea peace was far more unexpected and caught gold bulls off guard.

A technical look at gold does show that once again, the psychological and technically important level of 1300 has held for now. The bearish technical that shows longer term trouble for gold is the break beneath the 200-day moving average. There is still hope for remaining long, but we really need a hold of 1300 for the moment. If we hold this area the downside is minimal, and another test of the highs could be in order.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-435-4805 or jgraves@rjofutures.com.

Metals - Silver

Is Silver in a Bear Trap?

July silver is trading at 16.425, down about two cents on the day. The technical outlook for silver is that it is up at least from the monthly low made May 1, 2018, of 16.07, but overall it's trending down. If price breaches the 16.20 level again, per close bases, this could result in a selloff to the 16.00 psychological level. If pressed below 16.00, you might see a low of 15.80 or even lower. So all that said, a trade over 16.70 is needed to put near-term lows in.

As I have stated in the previous report, “the technical outlook for the US dollar index is improving with more US rate hikes on the horizon. Even with the strength of the US dollar index, the silver chart looks more bullish with a weekly structure leaving 16.05 near-term bottom. The only negative for silver is the size of longs in this market; therefore, any profit taking type of sustain pullback should be an opportunity to buy rather than sell.”

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or etesfaye@rjofutures.com.

Energies - Crude Oil

WTI Crude: Trading a $3.00 Range...

May 4, 2018 10:05AM CDT

This week the EIA Petroleum Status Report showed US oil producers ramping up productions, with a build in inventories of 6.2 million barrels. This comes as a sizable increase compared with last week’s build of 2.2 million barrels, and supports the notion that US oil producers are continuing to offset the cuts in production from overseas. The increase in US oil production has come alongside a week over week rise in US refining, to 91.1% of full capacity, up 0.3%. It’s also being reported that US pipelines are at full capacity, and unable to move oil from fields to refinery at the rate of oil production. I have mentioned in the past, the $60 to $65 price per barrel threshold is significant for many (both within US, and abroad) producers. Now that WTI crude prices have broken above multi-year highs, and the psychological price barrier of $66 is likely to be tested as support, and that has continued to hold as the low end of the $3.00 range. It’s worth noting that the current run up in crude prices could be the result of pipeline constraints, where US shale oil fields are having trouble moving the product to market. This is generally because pipelines are at capacity, and with pipeline expansion projects in the works, WTI producers are having to rely on the more expensive means of trucking crude from fields to refineries.

With a constraint in the ability to get oil out of production areas, the price of WTI crude seems to be supported in its range for now. While it’s still early, and some conditions are starting to suggest short-term over bought conditions, but with each selloff to the low end of its current range, those conditions seem to be unwound. While a Fibonacci support zone has already provided a bounce from the $58.50 to $58.00 inflection zone (blue boxes on chart are Fibonacci inflection zones), WTI crude futures have begun their climb towards these inflection zone targets clustered between $70 and $76 a barrel. If WTI crude prices break back into the multi-year range (below $65), traders can expect support into the $63.80 and $58.00 inflection zones. Before this situation can even be considered, WTI crude price would need to settle below $65.00 a barrel. Until then, expect buyers in the dips, and for the price of WTI crude to continue to test the $70.00 handle, and a break above could lead to a test of $76.00.

In my opinion, the rally that has taken WTI crude prices above the $66.66 continuous contract highs (into the end of 2017 and start of 2018) is still at the forefront of traders’ minds. There is a literal wrestling match over trend between the bulls and the bears, which ruminated for most of the month of April. While there are still the prior highs ($69.55) to break through, there may be an opportunity to position for the resolving push to test above $70.00 and hit those technical $76 upside targets. With WTI Crude prices above prior multi-year highs, the trend is up until it’s not - and I like to think, trend is my friend. When a market speaks, you must listen, and WTI crude may be telling us this is the beginning of a much larger trend being born.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or dhussey@rjofutures.com.

Softs - Sugar

Technical Turn Emboldens Sidelined Sugar Bulls – Inflation Hedge?

This week’s comment finds July sugar futures working to carve out a near-term bottom. The fundamental news flow continues to weigh on price. Top sugar producing countries show no signs of taking their foot off the gas. Which leads us to a comment on this morning's comment from Hightower where they mention Brazil has been utilizing cane for ethanol vs. sugar likely due to high prices being commanded for gasoline. This is not a bearish development for sugar but could be short lived depending on oil producing countries ability to maintain discipline regarding oil supply. Also, sugar may be getting pulled higher by the action in other soft commodities. Cocoa has posted a dramatic rally and even coffee is starting to perk up. Now sugar futures, another market like coffee that the financial world has viewed as doormat for quite a while, is also starting to heat up. The idea that inflation is on the rise is getting traction across the game table. It could well be that traders are beginning to move into commodities that have historically been viewed as hedges against inflation. Technically, sugar is running up into the 18-day moving average. Should the July futures contract manage to close above the 18-day, 11.82, more short covering could occur. Today’s volume was not small and it will be interesting to see what impact this move will have on open interest. Trend followers and their rather large short positions are out of the way, for now, with stops above 12.62 and 12.97. Both the 18-day and 50-day moving averages loom large overhead. Sugar seems undervalued and subject to short covering but until we see closes over those moving averages the trend is down.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-453-4494 or jnikruto@rjofutures.com.

Agriculture - Grains

Daily Market Update - Grain Futures - 05/04/2018

RJO Futures Senior Market Strategist Stephen Davis discusses the grain futures markets. If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7181 or sdavis@rjofutures.com

Currencies

US Dollar Index Races to YTD Highs

The US dollar has stepped up to the forefront of the currency space over the past 2-3 weeks and looks like there’s more room to run. Inflation related data has seen a recent acceleration in the US with the PCE Index hitting 1.9%, just under the Feds 2.0% target for inflation. As US interest rates have chased inflation expectations higher, the US dollar has followed suit, climbing more that 400 points since its February low of 88.25 (Cash Index). Adding further fuel to the US dollar’s fire is the broad based slowdown in both growth and inflation across the Euro Zone. Euro Zone core CPI decelerated to 0.7% y/y, and should set the tone for a dovish Mario Draghi and ECB. On top of the slowing inflation data in the EZ, up until just two weeks ago, the euro had a record net spec long position according to the CFTC, and now we’re seeing the long side trade unwinding, adding further selling pressure.

As we move thru the 2nd quarter, we still continue to believe inflation is likely to accelerate in the US, which should keep the USD in favor vs all other major foreign currencies. As always, our opinion remains data dependent to inflation expectations and the direction of interest rates. For the time being we’re buyers of the US dollar on dips/corrections to immediate term support levels.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or jcaruso@rjofutures.com.

Equities

Equity Markets Leaning Bearish

The overnight global markets were mixed with Pacific Rim markets higher and the rest of the world generally weaker. The performance in the equity markets after the mostly “dovish” FOMC result yesterday is suggestive of a market leaning bearish. As indicated already, the E-mini S&P has been presented with a series of potentially major bullish headlines and yet prices have remained within striking distance of this week’s lows and well below the last month’s highs. The larger picture shows that the E-mini S&P clearly remains within a three-month old downtrend pattern that doesn’t appear to have strong value until 2600. Even though the Fed is off the back of the market for now, there is hope for an improvement in US/Chinese trade relations but a decline below this week’s low of 2625 and disappointing data can push the market lower.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-1656 or jyasak@rjofutures.com.

FOMC & Employment

Markets Absorb FOMC and Unemployment

As of Friday morning, markets are finishing a week which included both the results of the last Federal Open Market Committee and the April US employment report. The week also included a number of other numbers from the Eurozone and earnings from S&P 500 companies.

Today’s employment report showed a payroll number in range with consensus estimates with a rate of 3.9%, the lowest level in two decades. The FOMC announcement also had the expected decision to hold rates at the 1.5-1.75% range, with Fed Funds futures, the Fed dot plot and Fed speak still eyeing another rate hike at the next meeting.

While a healthier and more flexible rate environment and decades low unemployment would have thought to be positives, the markets seem to have already factored in the news and may be looking ahead or elsewhere at a number of other factors.

Certainly inflation, geopolitical and international trade concerns as well as a number of other factors are front and center amid such positive reports.

For instance, the late January highs in equity indices have yet to be tested as the interest rates and oil prices trade near multi-year highs.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or modonnell@rjofutures.com.

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